Trading the News: U.S. Non-Farm Payrolls
Why Is This Event Important:
As market participants expect the U.S. labor market to improve for the second consecutive month in November, the data is likely to instill an positive outlook for the world's largest economy, and the rise in employment could spark a bullish reaction in the greenback as the recovery gathers pace. However, as risk trends continue to dictate price action in the foreign exchange market, the release could fuel a rise in market sentiment, which in turn would spur U.S. dollar weakness as investors move into higher-yielding currencies.
What's Expected:
Time of release:12/03/2010 13:30 GMT, 8:30 EST
Primary Pair Impact :EURUSD
Expected: 150K
Previous: 151K
Will This Be Market Moving (Scenarios):
Non-farm payrolls in the U.S. are forecasted to increase another 150K in November following the 151K expansion in the previous month, while unemployment is projected to hold steady at an annualized 9.6% for the fourth consecutive month. As private sector spending remains one of the leading drivers of growth, the rise in employment could encourage the Fed to hold an improved outlook for the economy, and the central bank may see scope to start normalizing monetary policy next year as growth and inflation accelerates.
The Upside
The ADP employment report showed private payrolls increased 93K in November to exceed forecasts for a 70K rise, and the faster pace of economic expansion could generate a larger-than-expected rise in non-farm payrolls as the recovery gathers momentum. At the same time, the Fed noted that economic activity increased in 10 of the 12 districts, with hiring improving in most districts, and the Fed may turn increasingly optimistic towards the economy as policy makers expect growth to accelerate in the following year. A marked rise in employment could lead the EUR/USD pare the two-day rally, and push the exchange rate back below the 200-Day moving average at 1.3123 as growth prospects for the world's largest economy improves.
The Downside
However, the ISM's gauge for manufacturing payrolls slipped to 57.5 in November from 57.7 in the previous month, with the production index falling back to 55.0 from 52.7 in October, and businesses may keep a lid on employment throughout the following year given the ongoing slack within the real economy. A dismal employment report could spark a sharp selloff in the U.S. dollar as the fundamental outlook remains clouded with uncertainties, and the EUR/USD may work its way back above the 100-Day SMA at 1.3323 as it retraces the sharp decline from November.
How To Trade This Event Risk
Expectations for a second consecutive rise in U.S. employment certainly reinforces a bullish outlook for the greenback, and price action following the release could set the stage for a long U.S. dollar trade as the economic recovery gathers pace. Therefore, if non-farm payrolls increase 150K or greater in November, we will need a red, five-minute candle following the data to generate a sell entry on two-lots of EUR/USD. Once these conditions are met, we will set the initial stop at the nearby swing low or a reasonable distance after we take market volatility into account, and this risk will establish our first target. The second objective will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in order to preserve our profits.
On the other hand, the ongoing slack within the real economy paired with the uncertainties clouding the economic outlook may lead firms to scale back on hiring, and a dismal non-farm payrolls report could spark a bearish reaction in the greenback as growth prospects deteriorate. As a result, if employment increases less than 50K or unexpectedly contracts from the previous month, we will adopt the same strategy for a long euro-dollar trade as the short position mentioned above, just in reverse.
Potential Price Targets For The Release
Impact that the change in U.S. Non-Farm Payrolls has had on USD during the last month
Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
Oct 2010 | 11/05/2010 12:30 GMT | 60K | 151K | -15 | -69 |
October 2010 U.S. Non-Farm Payrolls
The U.S. economy added 151K jobs in October amid forecasts for a 60K rise in non-farm payrolls, while the unemployment rate held steady at an annualized 9.6% for the third consecutive month. The breakdown of the report showed private payrolls increased 159K, which exceeded forecasts for a 80K advance, while employment in manufacturing unexpectedly slipped 7K during the same period after contracting a revised 2K in September. The data encourage an improved outlook for the world's largest economy as employment improves for the first time in five-months, but the eight million jobs lost during the recession may continue to bear down of the economic recovery as private sector consumption remains one of the leading drivers of growth. As the fundamental outlook remains clouded with uncertainties, the Fed expanded its asset purchase program in an effort to spur a sustainable recovery, and the central bank may look to support the real economy throughout the first-half of 2011 in order to balance the downside risks for growth and inflation. |  |
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market's directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario: If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the EUR against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on EURUSD ahead of the data release. | Bearish Scenario: If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the EUR against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on EURUSD ahead of the data release. |
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Source: www.dailyfx.com
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